In October, I wrote a memo on the coming wave of zombie venture capitalists plaguing the industry. The thesis of this prediction is that (1) there are too many VCs and (2) most VC funding has been concentrated into zombie startups. With the way the economy is heading, zombie startups and the reduction in capital abundance will turn VC firms into zombies themselves.

As much as this growing problem concerns the future growth prospects of the US and the rest of the world, there's another issue that is brewing and it's the decreasing availability of capital for Main Street. The banking crisis of early 2023, which affected startups and high net worth individuals, has also hit main street. Small businesses are struggling to get loans to expand or rescue their business as banks have tightened their lending standards. Unlike startups, your typical small business is generally profitable and as a whole, small businesses are probably more profitable and stronger than the Silicon Valley startup ecosystem.

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With that, I can see venture capitalists moving away from playing musical chairs with startups and start applying the venture capital model towards funding small businesses. For most of these small businesses, they've had a strong record of being profitable as many people operate businesses like these for a living. The likelihood of these deals not doing well are much lower when funding a local car wash than compared to funding a fabless AI chipmaker. For small business owners, the mentorship that VCs provide can be priceless as they can operate their businesses more efficiently and have a long-term vision to work towards. At the same time, the equity financing allows these small business owners to invest more back into the business than in making payments to a bank. If Silicon Valley can create many innovations thanks to venture capitalists, it would be exciting to see small business America become innovative like never before because VCs chose to take interest in investing in mom and pop businesses.

The guaranteed returns that small businesses provide to venture capitalists will add a level of sustainability to the VC industry. Instead having to deal with extreme boom bust cycles, the booms can still be big but the busts can be smaller. With too many VCs, directing venture capital towards small business America can help reduce the bubbles commonly found in the tech scene. Less money will be concentrated at the top 1% of startups and more capital can flow towards more productive small businesses, enhancing the returns that each dollar creates.